From a high point in November, Scottish Mortgage (LSE: SMT) has seen its share price fall more than 30%. Over the past year, the former market darling has seen a share price decline of 22%. Given its heavy tech weighting, I think ongoing market turbulence could see the Scottish Mortgage share price fall even further.
But as an investor, assessing a share for my portfolio means involves two different possible sources of financial gain. One is the capital gain – or loss – based on what I pay for a share today versus its future sale price. But a second is its dividend yield. In SMT’s case, the dividend is something I think investors often overlook.
SMT: growth and income
Shares often get bucketed into growth or income categories. SMT is primarily seen as a growth share. That is mainly because its portfolio of investments is concentrated in fast-growing companies like Tesla and Amazon. It also reflects the trust’s own punchy price history. The recent performance may not look good, but over the past five years the Scottish Mortgage share price has more than tripled.
But although I admire its track record of investing in promising growth shares, SMT also offers me some income potential. In fact, a lot of investors do not realise that this dynamic, future-looking trust has been in existence for 113 years. Scottish Mortgage has a stellar record of consistently paying dividends. The last time it cut its dividend was in 1933. Past performance is not a guide to what will happen in future. But that record does make me wonder what the income prospects might be like for me if I bought Scottish Mortgage shares today.
Low yield
Although the Scottish Mortgage dividend has not been cut since before the war, it is not that big. Last year, for example, it paid 3.42p per share. That was a 5% increase and this year’s interim payout is also up 5%. But in absolute terms, the dividend level remains small.
That comes into focus when expressing the dividend in terms of yield. The strong share price growth at Scottish Mortgage in the past few years far outpaced dividend growth, leading to a shrinking yield. The current SMT dividend yield is just 0.3%. That would be a welcome bonus to me if I owned the shares. But it alone would not motivate me to invest in SMT from an income perspective.
Impact of a falling Scottish Mortgage share price
As dividends increase and the share price falls, the yield available to me on SMT shares moves up. It still seems low at 0.3%, but if there is a sizeable further downwards move in the SMT share price, the yield could yet reach a level I find attractive.
On top of that, I think SMT may keep increasing its dividend in future. As some of its growth shares see their early stage businesses mature, they may start to pay dividends in the way Apple did. That might give SMT extra cash it could distribute to its own shareholders as dividends.
I am not ready to buy yet, as I expect further market turbulence may affect its investments. But I am keeping an eye on the Scottish Mortgage share price – and its yield.
Christopher Ruane has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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